Contact: Ben Kolada, Jim Davis
Cisco recently announced that it is acquiring video encoding provider Inlet Technologies for $95m in cash. The deal is the latest addition to Cisco’s ongoing strategy of helping service providers such as Telstra build content delivery networks that can serve video to TVs, PCs and mobile devices for pay TV services.
Cisco has picked up a lot of video-related technology over the years. Despite its networking expertise, video is a notoriously difficult beast to tame, and even more so when dealing with video over less-predictable public IP networks. Cisco bought V-Bits in 1999 for $129m to add video-processing gear to its repertoire, but stopped production in 2002. In 2000, Cisco spent $369m to acquire PixStream for its video headend gear for IPTV systems, but then closed the operation four months later when the stock market bubble burst.
When it got serious about gaining expertise in video, Cisco spent $6.9bn in 2005 on Scientific-Atlanta, a major equipment supplier to the cable industry. In 2006 Cisco acquired UB Video, a Canadian firm focused on developing MPEG-4 AVC software for use in encoding and decoding equipment. Later that year it also bought video-on-demand (VOD) software specialist Arroyo Video, whose products formed the basis of VOD servers sold to cable and IPTV providers. In acquiring Inlet, Cisco picks up an established player in the market for video encoding equipment used to ready video for delivery over multiple delivery mechanisms. Inlet’s encoding systems have two strengths: one is that they are powerful enough to do high-quality live streaming over IP networks, the other is that the gear is built for adaptive bit-rate streaming, which is becoming a favored method for delivering video to mobile devices.
Inlet reportedly recorded $7.6m in revenue in 2009 and claims to have doubled sales last year. Assuming that the company closed 2010 with $15m in revenue, Cisco’s $95m offer would value Inlet at 6.3 times trailing sales. While that multiple is more than twice as high as the average for all tech transactions, it’s actually slightly less than similarly sized video encoding competitor On2 Technologies received from Google last year. On2’s investors balked at Google’s original $106m offer, which valued the target at 6.1x sales, but later settled for a revised bid of $132m, or 7.5 times sales. (Click here for my colleague Jim Davis’ full report on the Inlet transaction.)